Seeing Black Gives Regeneron a 9% Pop

Regeneron registers its first profitable quarter.

Regeneron Pharmaceuticals' (Nasdaq: REGN) launch of Eylea has been nothing short of amazing. Sales haven't spiked up quite as fast as Vertex Pharmaceuticals' (Nasdaq: VRTX) Incivek, but Eylea was launching into direct competition from Roche's Lucentis and cheap off-label use of Roche's Avastin. By contrast, Incivek was an add-on therapy to the existing standard of care, so there wasn't an entrenched leader that it had to steal market share from.

In the first quarter, Regeneron registered sales of $124 million, a solid increase over the $72 million run rate it exited the fourth quarter with. The biotech estimates it's taken 10% of the macular degeneration market. The ability to inject the drug half as often is a clear advantage, so I'm not shocked it was able to reach that level of penetration -- I'm just surprised it happened so quickly.

Equally surprised, it seems, is Regeneron's management -- or they're just really cautious with guidance. After the solid quarter, Regeneron is guiding for sales between $500 million and $550 million this year, which is nearly double the guidance it put out in February. And that guidance was an increase from just a month prior.

The solid quarter allowed the biotech to become profitable for the first time in its history, which is always a monumental occasion. Given the continuing increase in sales, I imagine Regeneron will be able to stay in the black, something other fledgling biotechs like Onyx Pharmaceuticals(Nasdaq: ONXX) had trouble doing once they turned a profit; research and development for the next blockbuster isn't cheap.

Regeneron's secret to success is the pact it struck with Sanofi(NYSE: SNY) a few years ago that has the French pharma giant footing the bill for much of the biotech's research in exchange for a cut of the drugs that are developed. In the first quarter, about 70% of Regeneron's research and development costs were reimbursed by collaborators.

While the launch of Eylea has been nothing short of spectacular, investors' enthusiasm might be getting ahead of itself. With a market cap over $12 billion, Regeneron trades at a whopping 24 times this year's projected sales -- not earnings, sales. Investors are counting on Eylea to continue growing, which seems reasonable given the room to penetrate further, but the biotech will likely need a hit or two from the pipeline to justify that price as well.